Examining the Effects of Performance Monitoring and Performance-Based Pay on Honest Behavior

39 Pages Posted: 15 Aug 2015

See all articles by Charles D. Bailey

Charles D. Bailey

James Madison University

Brian K. Laird

Arkansas State University

Nick Fessler

University of Texas at Tyler

Date Written: August 14, 2015

Abstract

As the workplace grows more complex, employers increasingly rely on information provided by frontline employees and managers. For this reason, honesty is an increasingly important topic in the business literature. We investigate the effects of two environmental variables on behavioral dishonesty. Using 88 participants in a 2×2 experimental design, we manipulate the presence of performance-based pay (PBP) and performance monitoring (PM) in the work environment. Once the participants are accustomed to their assigned work environment, we test for dishonesty across treatment groups by letting the participants privately roll dice to determine the size of a bonus gift card. We find an interaction effect of PBP and PM on dishonesty, where dishonesty is highest for those who were exposed to PBP but no PM, lowest for those who were exposed to both PBP and PM, and in between for the other two conditions. Additional analysis from our exit survey confirms that the effects of “feeling monitored” on honesty is dependent on compensation type. Explanations and implications are discussed.

Keywords: Performance-Based Pay, Compensation, Performance Monitoring, Internal Controls, Honesty

Suggested Citation

Bailey, Charles D. and Laird, Brian K. and Fessler, Nick, Examining the Effects of Performance Monitoring and Performance-Based Pay on Honest Behavior (August 14, 2015). AAA 2016 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2644463

Charles D. Bailey

James Madison University ( email )

Harrisonburg, VA 22807
United States
901 484-0867 (Phone)

Brian K. Laird (Contact Author)

Arkansas State University ( email )

College of Business
PO Box 970
Jonesboro, AR 72404
United States

Nick Fessler

University of Texas at Tyler ( email )

Tyler, TX
United States
903-565-5733 (Phone)

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